Finance Transformation: From Efficiency to Effectiveness

Transforming finance into an effective function capable of helping business teams execute strategy more effectively, make informed risk decisions and drive business performance isn’t just about new technology, shared services centres and centres of excellence.

As much as anything else, it is about changing old habits and behaviours. Redefining the role of finance in the business and transforming not only what the function does on a daily basis but also how it does it.

This also involves finance professionals developing an appetite for improvement, constantly self-assessing their modus operandi and establishing how they can perform their work better.

When embarking on a finance transformation journey, it is very important for the CFO to clearly define the core vision, communicate the purpose and goals of the transformation, and articulate the road map for the journey.

Following this approach helps keep the team and key stakeholders focused on the benefits the transformation will deliver.

Identify the Problem First Before Technology

In today’s fast-evolving environment where CFOs are inundated with new technologies to drive their company’s ambitions, it easier to follow the herd without first building a solid investment case.

The thinking is that if we implement a new ERP platform we have successfully transformed our finance function. This not always the case.

Although technology empowers the finance function to evolve to a modern global finance function your focus should extend beyond standardizing and streamlining workflow. New technology should enable you do what hasn’t been done before.

For example, your transactional processes (AP, AR, Journal Entries, Bank Reconciliations, Reporting and General Accounting) are all heavily manual which is causing you to close your books at least 20 days into the new month leaving little room for FP&A and business partnering.

In this instance, you would want to take advantage of a new cloud-based ERP solution that provides you with a standardized IT infrastructure and help you streamline existing decentralized and highly fragmented reporting processes.

Instead of investing in the new ERP platform just for the sake of investing, you first focus on the end-to-end processes, identify the problem(s) that need solving and look at the expected benefits beyond cost reduction.

As a result, you are now able to close your books earlier and free up finance to focus more closely on business partnering and deliver performance insights and decision support to assist in achieving the company’s growth objectives.

Headcount Reduction versus Productivity Increase

Reducing headcount, achieving transactional efficiency or improving control and governance processes should not act as the sole focus of your transformation journey. Many companies make the mistake of believing that finance transformation is all about reducing FTE costs.

Subsequently, after reducing finance headcount and making the function leaner, the workload remains the same, at worst increases, making it difficult for the remaining teams to manage the heavy workload. Ultimately, productivity deteriorates.

As much as it is important to benchmark the size and cost of your finance function, what is also key is that you clearly define finance staff roles and requirements as per your function’s vision and how it fits into the broader vision of the company.

This will help you eliminate or combine specific roles where there is duplication of effort. It also helps develop the right talent mix and capabilities.

Think Broad and Analytically

Today, companies are privy to large amounts of data (economic, customer, social media, production, market, competitor etc.) and cannot look at business performance from purely a transactional view anymore.

Rather, they must use such data to interpret strategic performance, benchmark against competitors and craft a more holistic experience for stakeholders. Instead of spending ample time discussing small variances, the focus should be on the big picture. Identifying and discussing key business drivers and big trends.

This requires investing in the finance function’s operational and commercial acumen as this is key to supporting the business across the entire value chain, from product design and development to manufacturing and from brand management to distribution, sales and after-sales.

Thus, one of the goals of your finance transformation should be to develop well-rounded professionals who are able to connect the dots, contribute alternative perspective to strategic conversations and help the business break into new markets and diversify revenue streams.

One of the challenges in many organizations is that business unit managers are self-serving and focus only on their own markets, ignoring the impact of their decisions on other business units. Finance business partners are better positioned to unite these teams.

They are analytical, broad thinkers and understand the cause-and-effect relationship of disparate business unit decisions, including the role of finance in cross-functional collaboration to improve the performance of these operating units.

Leveraging their extensive functional knowledge, business acumen, experience and relationships built from partnering with various stakeholders, FBPs are able to engage business unit leaders into more value-adding conversations.

Rather than act as a barrier and tell them what they can and cannot do, FBPs first seek to understand what is it business unit leaders want to achieve, how and why it is important and then provide informed decision support taking into account the impact on the broader strategic performance.

Change Management

Stakeholder engagement, or lack of it, can signal the difference between success and failure of any finance transformation agenda. Challenges will abound. Targets will be missed. Teams will resist change and prefer to continuously focus on what they know best.

You therefore need to keep all invested stakeholders engaged, aligned and informed of progress. Offering coaching and insight, rotating employees through a wide range of operations, exposing them to challenging projects and allowing them to experiment with new ideas and learn from mistakes all help in this front.

As long as the mistakes are within acceptable limits you want your team to feel empowered to make key performance decisions and at the same time become trusted business advisors.

Although habits and behaviours are not something that can be changed overnight, they are still key ingredients for an effective transformation. A cultural shift and buy-in is therefore imperative.